October 30, 2018

Jair Bolsonaro Elected Brazil's next President

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

Brazilians went to the polls on Sunday and elected Jair Bolsonaro as their next president with 55% of the votes compared to 45% for Fernando Haddad from the Workers Party. Bolsonaro appealed to voters fed up with crime, economic stagnation and particularly widespread corruption in the political class. This vote was more a vote against the Workers Party represented by Haddad as it was in favor of Bolsonaro. He will be sworn in as president on January 1, 2019.

Bolsonaro was the clear choice of the agricultural community because of his promises to reducing or eliminating environmental regulations that farmers have long been opposed to. It is uncertain though if a Bolsonaro administration will do everything the farming sector wants. The agricultural sector is impacted by many factors in addition to environmental regulations such as: interest rates, inflation, the currency exchange rate, and especially trade with China, which is Brazil's number one trading partner.

Recently, Bolsonaro went on an ant-China rant, which has some Chinese officials concerned. As reported by Reuters, newly elected Jair Bolsonaro had some harsh words about China, but his complaints about China are much different than Donald Trump's complaints.

Bolsonaro is totally fine selling soybeans, iron ore, and other commodities to China. After all, nearly 80% of Brazil's soybeans are destined for China was well the majority of its iron ore. What Bolsonaro is concerned about is the potential for China to purchase controlling interest in strategic industrial sectors such as oil, mining, and energy as well as infrastructure projects involving railways, ports, and highways. One thing that Bolsonaro is particularly opposed to is Chinese investors purchasing wide swaths of Brazilian farmland.

Owning land is of paramount importance for Brazilians. Almost every Brazilian has the dream of owning a piece of land and almost all rich Brazilians do own land of some sort. Large ranchers or large soybean farmers are held in very high esteem in Brazilian society. The reason I mention this is because Bolsonaro as well as most Brazilians do not China to purchase farmland in Brazil. They are concerned that China would use prime farmland in Brazil to produce low cost commodities for Chinese consumption, which may or may not be in the best long term interest for Brazil.

Brazilians want investments to come into Brazil, but they do not want the investors (Chinese or anyone else) to have controlling interest in those investments. It is a paradox, which has not yet been resolved. This paradox will come to the forefront if Bolsonaro carries through on his campaign promise to privatize many of the state-run entities in Brazil.